The state universities in Michigan argue that they have been starved for money and that falling real appropriations from Lansing have jeopardized the quality of higher education. They contend that this has resulted in a loss of competitiveness for Michigan at a time when the state faces economic stagnation caused by globalization’s impact on key basic industries. Gov. Jennifer Granholm has echoed this theme, calling for new "investments" in higher education as a way to reverse Michigan’s relative economic
decline.

This short study makes two key findings. First, by most measures, Michigan public universities were not starving for funds during the period of sharpest appropriations cutbacks in the first half of this decade. Real revenues per full-time equivalent student on average rose throughout this period despite real reductions in state appropriations per student. Expenditure growth per student was somewhat less, and some schools actually had an inflation-adjusted reduction in per-student spending, while others continued to grow.

Second, there is compelling and strong econometric evidence nationally that state appropriations for higher education do not have positive effects on economic growth as claimed by many university presidents, Gov. Granholm and some key legislators. Indeed, the evidence points to the opposite conclusion: higher appropriations are associated with lower economic growth.

This suggests that the observed shrinkage in state appropriations over the first half of the decade was actually a positive development: one that dampened, albeit modestly, the real relative economic decline of the state. Moreover, it calls into question a growth strategy based on expansion of higher education. Indeed, other results included in the econometric estimation suggest that a better growth strategy would be to put the entire Michigan state government on a diet in order to finance a reduction in the overall tax burden. While higher education expenditures are not growth-inducing, the evidence shows that tax reductions are.